Efficiency and cost optimization program 2014–2016
The overall challenges facing European industrial enterprises, such as continuing uncertainties on the macroeconomic level, volatile customer behavior, multiple uncertain political framework conditions, and continuously rising personnel and energy costs, are being additionally exacerbated in the steel industry by structural overcapacities, which lead to intense competition and resulting severe price pressure.
In this environment, in addition to a clear strategic orientation, lean cost structure is absolutely essential. In order to secure the solid competitive position of the voestalpine Group for the long term, which has been achieved through consistent work over many years—and thus, ultimately, the continued existence of the voestalpine Group—in the spring of 2014, the Management Board resolved the implementation of a Group-wide cost optimization and efficiency improvement program aimed to save EUR 900 million over the course of three years.
The focal points of the program will not only be additional improvements in the areas of logistics, maintenance, and energy efficiency, but will especially encompass the purchasing and procurement process both with regard to raw materials and general procurement, the development of new market regions as well as new organizational models in a number of business segments (including the entire Steel Division), tough and thorough exploitation of Group-wide synergies, and last but not least, the accelerated restructuring of sites whose performance is poor or inadequate.
Closure of TSTG Schienen Technik GmbH & Co KG
In March 2012, the Management Board of voestalpine AG resolved to discontinue rail production by TSTG Schienen Technik GmbH & Co KG in Duisburg. The subsequent negotiations with the Works Council regarding a reconciliation of interests and a social compensation plan for the remaining approximately 350 employees were successfully concluded in May 2013. The closure of the company was completed in the fourth calendar quarter as planned, and as of January 1, 2014, the remaining employees were transferred to an interim employment company. The facilities were dismantled and the remaining inventory of rails was delivered at the beginning of the business year 2014/15, and all activities in connection with the closure of TSTG Schienen Technik GmbH & Co KG have now been concluded.
(Investment in) a direct reduction plant in Texas, USA
The groundbreaking ceremony for the construction of the Group’s new direct reduction plant in Texas, USA, took place on April 23, 2014. Once the plant is fully operational after about a two-year construction phase, it will produce two million tons of sponge iron annually, in technical terminology called DRI (direct reduced iron) or HBI (hot briquetted iron). This HBI will be partly used at existing sites in Austria in the classic steel production process using the blast furnace route, where it optimizes the raw materials mix, thus significantly lowering production costs. This will secure the competitiveness of the Group’s existing sites in Europe for the long term. The new plant in Corpus Christi, Texas—representing an investment amount of EUR 550 million, the voestalpine Group’s largest foreign investment up to the present—also opens up new growth opportunities in American economic regions. In North America alone the voestalpine Group already has 68 companies staffed by around 2,500 employees, which generate annual revenue of about EUR 1 billion, primarily in the automotive, special steel, energy, and aviation sectors.
The direct reduction plant in Texas will not only create 150 jobs, but it will help the voestalpine Group to further improve its carbon footprint and increase energy efficiency, with the most significant factor being the use of natural gas to reduce the iron from ore or pellets, which causes far fewer CO2 emissions than the classic blast furnace route using coke as the reducing agent. This will enable the Group to continue to enhance its leading position with regard to environmental and energy efficiency. As of the beginning of the business year 2014/15, the project is on schedule and precisely within budget.
Antitrust proceedings relative to railway superstructure material
After the German Federal Cartel Office (Bundeskartellamt) had imposed fines in July 2012 in the antitrust proceedings relative to railway superstructure material on four manufacturers and suppliers of rails for having entered into anti-competitive agreements to the detriment of Deutsche Bahn AG, the monetary penalty proceedings associated with the so-called rail cartel were concluded in July 2013 with its decision on the portion of the proceedings concerning the “private market”. The “private market” portion of the rail cartel case concerns deliveries of rails and railway superstructure material to municipal mass transit agencies as well as industrial customers and construction companies. For this portion of the proceedings, a fine in the amount of EUR 6.4 million was imposed upon the voestalpine Group. Within the scope of the monetary penalty proceedings, fines totaling EUR 14.9 million were imposed on voestalpine companies. Otherwise, voestalpine’s status of cooperating witness was confirmed for the major part of both proceedings.
As far as claims for compensatory damages by customers for deliveries by the cartel are concerned, corresponding payments were agreed upon that cover both direct and indirect deliveries of rails to Deutsche Bahn, which means that only compensatory damages for deliveries to municipal mass transit agencies and other private market customers are still unresolved. Due to the large number of companies involved, the period of time needed to resolve the matter completely cannot be reliably estimated at present.
The provisions set aside in the annual financial statements 2012/13 in the amount of EUR 204.4 million for the antitrust proceedings and associated actions and costs as well as for the closure of TSTG Schienen Technik GmbH & Co KG were reduced in the business year 2013/14 by the amount of the compensatory damages paid for direct and indirect deliveries of rails to Deutsche Bahn as well as by the amount of payments made in connection with the closure of TSTG Schienen Technik GmbH & Co KG. The total remaining provisions were adjusted in the business year 2013/14 in accordance with the current estimate, resulting in non-recurring income totaling EUR 8.1 million (balance from reversal and appropriation); as of March 31, 2014, the provisions amount to EUR 76.4 million.